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UK consumer confidence fell by one percentage point in the first quarter of 2017, according to the latest Consumer Tracker report from Deloitte.

The quarterly survey of 3,000 UK consumers, carried out between 17 and 20 March 2017, saw overall consumer confidence fall to -7% in the first three months of the year, down one percentage point from the previous quarter. Despite the quarterly fall in overall confidence, it remains broadly in line with the three-year average.

Four out of the six measures that make up the confidence index have seen negative movements in the first quarter, with inflation rising and discretionary spending falling. In particular, consumer confidence in disposable income fell by three percentage points to -17%, its lowest level in more than two years.

It comes as official figures this week are expected to show that the UK economy is losing its post-Brexit glow as the return of inflation puts the squeeze on household incomes. Economits are predicting a sharp slowdown in GDP growth to 0.4% between January and March this year, down from 0.7% in the final quarter of 2016.

Deloitte chief economist Ian Stewart said: “Since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze on their disposable income.

“In March, the rate of inflation stood at 2.3%, above the Bank of England’s 2% target and the highest in more than two years. There are already some signs that these pressures are contributing to a slowdown in consumer activity.

“Record levels of employment and low interest rates should help the UK avoid a sharp drop in consumer spending.”

The Q1 Consumer Tracker also revealed signs of a slowdown in consumer spending. Essentials spending remained strong – at 12% – after a significant increase in the final quarter of 2016. However, spending on discretionary items returned to negative territory, falling by four percentage points to -4%.

Ben Perkins, head of consumer research at Deloitte, added: “With less disposable income consumers will have to consider whether to trade down, buy less or borrow more. Consumers are already showing signs of moving away from making major purchases, and this is a trend that is likely to continue.

“Consumers have already been tapping into their savings with the latest data on the household savings ratio for Q4 2016 showing it is at its lowest level in over 50 years. However, with interest rates remaining low, debt has been relatively cheap to manage meaning borrowing more might still be an option.

“Retailers and other consumer businesses will need to think carefully about their offerings to ensure they are targeting the right products and services to the right customers. Indeed, rather than catering for all needs and desires, now it is the time for retailers to focus on specialisation, differentiation and innovation, in order to ensure they remain as competitive as possible.”

Morning update

It’s a quiet start to the week for the grocery sector but the FTSE 100 has surged 1.6% higher at 7,227.67 points to shrug off recent declines. The FTSE’s rise has been driven by some excellent early performance by Unilever (ULVR), Tesco (TSCO), Morrisons (MRW) and Sainsbury’s (SBRY, jumping 2.7% to 4,042.5p, 2.3% to 177.8p, 1.6% to 234.9p and 1.5% to 270p respectively.

There are also good performances from Diageo (DGE), up 1.5% to 2,242p, Imperial Brand (IMB), up 1.6% to 3,806.5p, and British American Tobacco (BAT), up 1.4% to 5,272p.

B&M European Value Retail (BME) has also leapt 1.9% to 335.9p, alongside a 1.4% hike for WH Smith (SMWH) to 1,802p and Ocado (OCDO), up 1.1% to 251.2p.

This week in the City

Whitbread is set to report its annual resulsts on Tuesday and the Costa Coffee owner is expected to show a healthy rise in its pre-tax profits, according to analysts.

Thursday then brings an AGM and an update on trading from McColl’s. And with the end of the month coming up, there is also the monthly GFK Consumer Confidence survey scheduled for Friday morning.

The Office for National Statistics will publish preliminary GDP figures for the first quarter of 2017 on Friday, with a slowdown in the economy expected by the City.

In the US this week brings first quarter earnings updates from Coca-Cola (KO) tomorrow and PepsiCo (PEP) and P&G (PG) on Wednesday.

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